HSBC Decides Against Moving HQ to Hong Kong

Imagine that a bank with "Hong Kong" in its name, with over 60% of its profits coming from operations in the Asia-Pacific, decides against having its headquarters in the aforementioned financial center of Hong Kong. Since moving its headquarters to London in 1993, HSBC has held board meetings every three years to decide on where its headquarters should be located. Even with seemingly onerous regulations being placed on the UK financial sector in the aftermath of the global financial crisis, HSBC has decided to remain in London.

And so it was again the case today: upon further review, HSBC has announced that it will stay put in the UK. Mindful of the current financial situation in China, Harry Sender of the FT says it's lack of faith in Chinese financial governance on top of the PRC's diminished attractions that explain HSBC's move:

For a start, the regulatory risk has soared as local and foreign
investors have lost their faith in the [Chinese] government and regulators’
ability to manage the markets and the currency. That matters to HSBC
because if it had shifted back to Hong Kong, the People’s Bank of China
[PBoC] would have been in effect its regulator and certainly its lender of last
resort.

You may quibble that it's the Hong Kong Monetary Authority (HKMA) that would be more applicable as the financial authority in HSBC's case than the PBoC. However, recent political events question the level of independence in Hong Kong:

Since that 1993 move, HSBC has reviewed its headquarters location every three years, and top executives often held a move back to Hong Kong out as a real possibility. But the Chinese government, which under president Xi Jinping has conducted a brutal crackdown on free speech, human rights, and his political opponents, appears to have spooked the bank’s board yet again.

HSBC just wrapped up its latest review of where the bank should be located, and despite the fact that some analysts estimated moving to Hong Kong could save the bank $14 billion, and Asia contributes most of the bank’s profits, HSBC will stay in London...

A bank spokesman would not elaborate on how much of a factor Beijing’s influence on Hong Kong played in the decision, but HSBC’s board reportedly enlisted former US secretaries of state Henry Kissinger and Condoleezza Rice for advice—a sign that politics, not the nitty-gritty of tax savings or employee recruiting played a big factor.

China's "Big Brother"-like domineering of Hong Kong is certain to have played a part in HSBC's decision not to move there. Refer to anti-PRC booksellers somehow winding up confined in the PRC. In other words, if political freedoms are not guaranteed, what basis is for there to think that economic freedoms are?

Beijing’s growing control over Hong Kong was certainly considered by the board, an unnamed HSBC “insider” told Reuters last month. “The situation in Hong Kong appears to be getting worse. You have to wonder if the city will remain a suitable base for an independent-minded, top global financial institution.”
Beijing’s government is violating the “Basic Law” and breaking the pledge it made to the UK, the UK foreign secretary said last week, a reference to the “involuntary” removal of British citizen and bookstore employee Lee Bo to mainland China.

Beijing has been cracking down on Hong Kong booksellers who sell materials critical of president Xi Jinping and the Communist Party—a violation of a pledge to allow free speech in Hong Kong, made when the city was turned over from Britain to China.
HSBC’s decision will have financial implications for Hong Kong, and China, which could have used the extra jobs and tax revenue the move would have brought. With thousands of employees still in Hong Kong, the bank is by no means abandoning the city, but the headquarters decision shows the board lacks confidence in city’s future.

Others would say HSBC raised the possibility of moving to Hong Kong as a bargaining chip for less obtrusive UK government scrutiny. That may be true, but the larger point remains that China didn't really go out of its way to make it attractive to move to Hong Kong.